Thursday, 28 April 2011

It might buy you happiness

Over Easter, the Archbishop of Canterbury (yes, him again), applauded David Cameron's Gross National Happiness project, saying "it's certainly a good thing that people have publicly acknowledged that there is more to life than the level of Gross National Product."

This is not an original thought and I don't disagree with the general sentiment. But then nor would anyone, and that is the point. The idea that anybody in the history of the world has ever believed that there is no more to life than Gross National Product is one of the great straw men of our times. Not only does no individual believe that, but there is precious little evidence that any government has ever made GNP the sole—or even main—consideration in public policy.

If we believed that there was no more to life than GNP, we would be rolling in the tax revenue brought in by the legalisation of drugs, health and safety laws would be abolished, the Department of Health would be a third of the size, the BBC would have been sold off and euthanasia for the over 65s would be not just legal, but actively promoted. The fact that they are not suggests that we, as a society, think that there are many things that are more important that GNP. A quick look at the legislation passed in the last decade shows that health and the environment—to name just two issues—are considered more important than economic growth.

What people like the Archbish and Lord Layard (of the recently formed Action on Happiness) mean when they say that GDP isn't the only important thing is that GNP really doesn't matter at all. Typically, this rhetoric comes from those demanding a 'steady-state' (ie. zero growth) economy. These are people who have grudgingly admitted that socialism isn't very good at creating growth, but still like the trappings of socialism.

Action on Happiness have so far kept quiet about what political action is needed to improve well-being, but—unless Layard's views have changed radically since he wrote his book Happiness in 2005—we can expect much higher taxes to encourage us to work less and much higher taxes to punish those who use their wealth as a negative externality.

What sets GNP apart from most of the things that make us happy in life is that it can be readily quantified and governments can do something about helping it along. This makes it a valuable measure and a legitimate target for policy action. Despite the ludicrous ambitions of David Cameron, no government is ever going to increase levels of love, nor is it going to bring us prettier sunsets or tastier sausages. If we must have a happiness policy, it should be to allow us to pursue it. For the most part, that would mean the government getting out of our way.

The "people only care about GNP" straw man exists to perpetuate the myth that modern society is obscenely materialistic. As the narrative would have it, we have been seduced into a narrow world view that makes us forget what is really important—in Williams' case, God; in Layard's case, God knows. But, as Will Wilkinson has pointed out, there is nothing in the least bit "narrow" about using GNP as one indicator of social well-being:

Many people seem to think that a government’s emphasis on measurements like GDP indicate a kind of collective affirmation of materialist goals, encouraging a narrowly materialist attitude at war with more exalted values. But this is simply a mistake. The very function of money is to serve as a neutral medium of exchange. It is a shape-shifting embodiment of almost any value. The same $100 can be spent on a prostitute or donated to an HIV/AIDS clinic.

The relative value neutrality of money is precisely why the measurement of per-capita wealth is well suited to pluralistic liberal societies; it doesn’t beg many questions about competing conceptions of the good life. Money can’t be converted into anything that someone might value, but it is of the nature of money to be convertible into a phenomenally broad range of values. Societies with high levels of average income and wealth are societies in which people have more resources at their disposal to achieve their aims, no matter what those aims might be, which is why it should be no surprise that, other things equal, people with more money are more satisfied.

Pursuing economic growth is not some niche obsession like collecting shoes or hunting Bigfoot, but if collecting shoes or hunting Bigfoot is your thing, money can help you do it. There is, of course, more to life than any of these things, but then no one ever said there wasn't.

Chris,You are certainly right that GDP is, for lack of a good way to measure most things that affect happiness, sensible to pay attention to. So the extreme anti-GDP position you observe is absurd. I would add also that a money-based measure has the huge advantage -- in terms of measuring happiness -- that it is inherently liberal and pluralistic. That is most any alternative conceivable measure of happiness involves someone deciding what people care about (or, more likely, some special-interest busybody deciding what people *should* care about), whereas, as you point out, money can be directed toward what the individual is interested in.

However, there are still some obvious simply improvements to be made over using GDP as a proxy for social well-being. Utility functions always recognize that the marginal value of a bit more wealth in the hands of one person drops off as he gets richer, so a better version of GDP would adjust for distribution, recognizing that the more of that product that is in the hands of a few people, the less the total happiness. Leisure/family time and "women's work" can easily be added in also by simply counting the hours of work among the employed as a negative, recognizing that extra GDP at the expense of spending lots more time working and commuting is not good (involuntary unemployment is a different story). It is a bit more difficult to factor in public amenities like public parks, festivals, etc. (which are a measurable material good, not something touchy-feely, that produce a lot of happiness approximately no GDP).

Anyway, it is easier to just measure GDP than to look at these other factors, but not that much easier. There is certainly room for debate about how heavily to count them, but the current default (to count them as zero) is obviously worse than any honest effort to do something.

Consider, as an example, the horrors and silliness of your monarchy that is annoyingly crowding out the real news today. For about a millennium, that institution stole so much of society's wealth for a few people that adding additional GDP had a trivial effect on the real people's happiness. Those people were working so long and hard that it not only left them little time for happiness but it actually left them malnourished. So when government functions as a crime syndicate, GDP is not a good measure of happiness at all. Contrast today, when your people seem to be getting some large measure of happiness from watching the proud descendant of those exploiters of the people (the most charitable characterization; as case could be made for "thugs and slaveholders") get married, but without producing much GDP.

Contrast the French, with greater happiness by most measures, somewhat lower GDP per capita, shorter work hours, and guillotines.

What I see as a problem is, that while it is generally true that prosperity is manifested by higher GDP, it doesn't necesariily follow that higher GDP means prosperity; especially if accompanied by growing government influence. For an especially glaring example see Bob Higgs's essay on WWII GDP.

So - I am somewhat afraid by the obsession of growth when considering fiscal stimulus...which is I'd guess just one example that may produce GDP growth by sleight of statistics.

About Me

Writer and researcher at the Institute of Economic Affairs. Blogging in a personal capacity.
Author of Selfishness, Greed and Capitalism (2015), The Art of Suppression (2011), The Spirit Level Delusion (2010) and Velvet Glove, Iron Fist (2009).

Elsewhere

"Of all tyrannies, a tyranny exercised for the good of its victims may be the most oppressive. It may be better to live under robber barons than under omnipotent moral busybodies. The robber baron's cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end, for they do so with the approval of their own conscience."